Nov 08 New Internet Sales Tax?

Taxing the Internet

It’s been a good ride these last 16 or so years since the Internet first began to be a viable marketplace for ideas and goods. However, it looks like the good times are nearly over as talk of and implementation state by state of an internet sales tax is becoming more and more common. A bill is moving through the California legislature as I write this, to tax all internet retail sales in order to boost state revenues and put some money back in the California’s empty coffers. At the same time a bill that would have expanded the number of retailers taxed on the Internet was vetoed in Texas by Governor Rick Perry.

States collecting sales tax on internet revenues is not a new thing, but the trend is really taking off right now. Four other states including New York and Colorado have already passed similar laws and 13 others, including California are either considering them or moving them through their legislatures. Internet retailers are fighting these laws and many have stopped doing business in Illinois, a state with a stringent Internet sales tax law.

Governor Perry vetoed the law that came to his desk because he “was afraid this bill would have unintended consequences”. He dodged criticism by saying that he wanted to have an open dialogue with all parties involved, including the federal government, about interstate commerce and how to best come to a consensus that helps everyone. Basic politician BS, but at least Perry is giving web retailers in Texas a bit more time to collect revenues untaxed. The Supreme Court has had their say on the matter with decisions in 1967 and 1992 saying “that states cannot impose sales taxes on merchants unless they have a physical presence such as a store or warehouse there.” Seems pretty clear, but legislatures that have passed laws taxing internet sales have successfully reclassified online businesses, stating they fall under a different category than their brick and mortar equivalents.

Supporters of internet sales tax bills generally say that the bills are necessary to create a level playing field for traditional stores to compete with large online retailers like Amazon and Overstock. I agree with this sentiment. Huge online retailers that are raking in profits need to be taxed, but exceptions should be made for smaller online retailers. These boutique online stores should be taxed significantly less or not at all, since they’re already facing much more competition on the internet trying to sell to a global market than a local business faces selling to a local market.

In addition to the issue of state internet sales taxes, The US congress is also considering passing a federal internet sales tax. The kind of bill they’re discussing now would mainly affect the big guys like Amazon, but I think it would only be a matter of time before all internet sales are taxed on both a federal and state level. I guess we’ll have to wait and see what happens. What are your thoughts?

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